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Weaker Dollar Seen As Unlikely To Cure Unemployment

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http://www.nytimes.com/2010/11/16/business/economy/16exports.html?ref=business

A weakening currency traditionally helps a country raise its exports and create more jobs for its workers. But the declining value of the dollar may not help the United States increase economic growth as much as it might have in the past.

Though a weakened dollar would help exports to some degree, business executives and economists said that because of the ways American multinational companies operated, it was uncertain whether it would cause much of an increase in hiring.

The issue is crucial for President Obama, who made economic growth and job creation the main themes of his recent 10-day trip to Asia. He has also held out the prospect that a surge in exports would reduce the nation’s stubborn unemployment rate, currently 9.6 percent.

Other world leaders have complained that American policies, especially the monetary easing the Federal Reserve announced this month, will depress the dollar and give American exporters an unfair advantage.

Mr. Obama and Treasury Secretary Timothy F. Geithner have repeatedly defended the central bank’s action as a move designed to encourage American businesses to borrow, invest and hire rather than one specifically aimed at lowering the value of the dollar.

But even if the Fed’s action does end up weakening the dollar, American workers may not benefit much. For one, many American manufacturers, from General Motors to General Electric, often make goods in the countries where they are sold rather than shipping the products abroad. This effectively takes exchange rates out of the equation, since they are using only one currency.

What’s more, companies that do send goods to other countries often buy components from abroad, so the advantage of a weaker dollar in selling is offset by the higher cost of buying.

“There are very few corporations that would see this just in one way,” said Martin Regalia, chief economist at the United States Chamber of Commerce. “It cuts across a whole bunch of lines.”

Even when a company enjoys a relative surge in foreign sales, it won’t necessarily lead to a hiring spree. That’s because the largest proportion of American exports are still manufactured goods, which are no longer so labor-intensive. “The net export effect is going to be positive, but it won’t be the driver of jobs,” said Daniel J. Meckstroth, chief economist of the Manufacturers Alliance, a trade group, adding: “You can replace people with machines.”

Still Bernanke is in job that's the important message he is an economic genius who can do no wrong......

Could the low dollar be to help Wall Street more than the American people?

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But even if the Fed’s action does end up weakening the dollar, American workers may not benefit much. For one, many American manufacturers, from General Motors to General Electric, often make goods in the countries where they are sold rather than shipping the products abroad. This effectively takes exchange rates out of the equation, since they are using only one currency.

Well there's one daft over simplification and assumption.

The parent company takes most of the profits and converts it into its own currency at some point, so USD and exchange rate does matter.

Also the location of the head office is important. General Motors for example has a head office in the USA. So a great deal of the administration staff (and that numbers in the tens of thousands) reside in the USA. If you increas profits and sales then you increase the headcount in the head office.

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“The net export effect is going to be positive, but it won’t be the driver of jobs,” said Daniel J. Meckstroth, chief economist of the Manufacturers Alliance, a trade group, adding: “You can replace people with machines.”

Interesting to see this point being made by someone directly connected to manufacturing. I was in WH Smiths today and they have now installed those automated tills that you see in the supermarkets- for some reason I was kind of shocked to see these in Smiths- not sure why really- it's just weight and bar codes, so I guess the machines don't care if they are processing fruit or stationary.

I know the argument is that technology does not in the end destroy jobs- but it's hard to see where the new large volume employment is coming from at the moment, given the pace of automation in almost every area of work.

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  • 196 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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